Is Profit First the right tool for your business?

Should you be using the Profit First methodology to "guarantee" profit in your business?

Maybe.

PF, for those of you who aren't already familiar with it, is basically the same idea as paying yourself first from the personal finance arena: Every time your business gets paid, you set some of that cash aside as "profit," some to pay yourself and your team, some to pay your taxes, and what's left over is effectively your budget for keeping the lights on.

It's like envelope budgeting for your business, in other words. Remember that? Your parents or grandparents are pretty likely to have used a similar method to manage their own money at some point in their lives. Ask them if they've heard of it :)

In theory, it's good for everybody, right?

Yeah, in theory. Because in many cases it *forces* people to run leaner businesses. It *forces* you to build the habit of paying yourself so you can keep eating and therefore keep *running* your business. If it's done correctly, it *forces* discipline into your business finances in ways that don't often come naturally to people with an entrepreneurial bent.

But on the other hand it *takes* discipline to do it right. It takes focus and attention to keep yourself from bending or breaking the rules of the system, but those rules are the guardrails that make the system work in the first place.

That means that if you're the kind of person who feels like Profit First might be the one thing that finally helps you get disciplined about your business finances, or that finally helps you right your ship, it may not be the answer for you. It's a way to understand and manage cash flow, but ultimately it doesn't do a lot to help you improve the sustainability of your business. It doesn't do a lot to help you *stay* in business if things are bad.

So when *is* PF an objectively great tool?

-When the way it reframes cash management jives with the way your mind works

-When it's a tool you use to *supplement* other ways you're improving your business - a great bookkeeper, an outsourced CFO or advisor, etc

-When you implement the system with an expert who gets it and who can keep you on track

--(or) When you understand its purpose and assumptions well enough that you can truly implement it for yourself

Profit First is a great tool in the same way that financial reports are great tools: If it's used correctly, with understanding and context, it can help you do vastly better. But if you're not willing to commit? If you haven't taken the time to truly understand the process or to find help? Don't bother. PF only adds another layer of complexity in that case.

Want to have a chat to see if we can help you get a handle on your finances or how you could supercharge your business? Get in touch!